The Tanzanian government is pushing for a revaluation of Precision Air shares before it makes any investment in the struggling airline, which is seeking a capital injection of $32 million from the state.

Precision Air chairman Michael Shirima the majority owner with a 42.91 per cent stake, said last week that the government had asked for the shares to be revalued before coming to any decision on the capital injection request.

Mr Shirima also revealed that the airline was in contact with other carriers interested in taking up a stake in the airline in return for the cash.

“The revaluation is not a precondition. The government wanted to be sure that before injecting equity into our company, it was at the right price per share as the shares were stagnant on the Dar es Salaam Stock Exchange and so the DSE price was not a realistic indicator. At the moment, they have not set any conditions,” said Mr Shirima.

However, it was not clear when and how the revaluation will be done, an issue that has left analysts guessing. “I don’t see how you can revalue a listed company unless you offer a discount rights issue or a secondary IPO,” said Kuria Kamau, an analyst at Kestrel Capital.

The latest development points to the growing complexities faced by Tanzania’s largest airline as it struggles to come up with financing alternatives to plug a cash flow gap caused by an overambitious expansion plan that left it bleeding cash.

On October 10, Tanzania’s Natural Resources and Tourism Minister Khamis Kagasheki had told a parliamentary committee that the government would not invest in the airline but Mr Shirima said he had not received any formal communication to that effect, but instead, the government had asked for additional details to help it make a decision.

“While the government has been responding positively, it is still cautious and wants the shares revalued before coming to any decision,” said Mr Shirima.

But though the Precision Air management team prefers the government option, the airline was considering other options that include raising additional capital from current shareholders, taking in more debt, selling and then leasing back its aircraft or selling part of its stake to other investors who would then inject more cash into the airline.

Mr Shirima said he could not name the interested international investors as the discussions were still at the initial stages. However, he said: “This avenue is not very attractive to the airline as it could mean losing the status of a majority local owned airline.”

The option of selling and leasing back its aeroplane, was in Mr Shirima’s view, not a good option as it will only give the airline a short reprieve instead of a lasting solution.

Chances of borrowing from a financial institution were doubtful as the airline was undercapitalised due to the fact that its 2011 IPO was not fully subscribed — with the airline raising only $7.4 million of the targeted $17.5 million.

The company is facing serious cash flow challenges occasioned by an overambitious expansion plan that saw it add new aircraft, which it has struggled to repay. In fact, it has had to terminate some leases and cancel flights to Johannesburg, South Africa, choosing instead to concentrate on East Africa.

Precision Air, which announced a Tsh30 billion ($18.2 million) loss during the first half of this year, is seeking over Tsh51 billion ($30.9 million) to enable it to get back on its feet. The airline’s majority shareholders are Mr Shirima, with 42.91 per cent shares and Kenya Airways, with 41.23 per cent shares.

READ: Precision Air starts cost-cutting after loss

The company, which is listed at the Dar es Salaam Stock Exchange, is struggling to beat off competition from budget airline Fastjet, whose cheap fares have badly affected the local market.

The entrance of Fastjet has seen Precision Air halt its flights to other local routes and suspend all foreign routes since the new managing director took over last year.

However, Fastjet recently recorded a $13.3 million loss in the first half of this year, painting a bleak future for the aviation sector in the country.

In another development, Air Tanzania announced recently that it was repositioning itself by launching direct flights to Bujumbura next month and increasing its local flights.

Additional reporting by Peterson  Thiong’o